Tauranga City councillors have voted to use a $3.7 million rates surplus to reduce rate bills in the next financial year.
Bound by its own policy to put the first $500,000 of any surplus towards retiring debt, the council debated what to do with the remaining $3.2 million yesterday.
Councillors were split between a suggestion by councillor David Stewart to smooth out rates fluctuations by spreading the reductions over several years, and Cr Bill Faulkner who said the money should be returned to the people who were over-charged.
After a recommendation to decide how to use the money during next year's annual plan process was voted down, Cr Faulkner put forward a motion to return all of the remaining money by reducing the rates $3.2m in 2013/14.
"If there was a deficit we would be asking next year's ratepayers to pick that up, and there would be no spreading that out over a few years," Cr Faulkner said.
Returning the money to as many of the over-charged ratepayers as possible was the "moral" thing to do, he said.
Mayor Stuart Crosby said rates were not "fair, reasonable and equitable". "They're a ruthless, draconian taxation and they're not fair, ask people who live on Marine Parade, because people pay different amounts for services that they may or may not use."
Mr Crosby said his other reservation with returning all of the money, as opposed to using it to manage debt, was that it would create a rates decrease of 1.4 per cent next year and councillors may be tempted to think they are entitled to spend more money in the annual plan.
Earlier this year, the council decided to limit rates increases to 2 per cent plus inflation and growth. The rates cap is to take effect from July 1, 2013.
Mr Crosby supported the basic principle that rates surpluses should go back to ratepayers, however he did not support the amount suggested by Cr Faulkner.
He suggested allocating $1 million to reducing rates in 2013/14, $1 million to the risk management reserve, and $2 million towards retiring debt.
The Tauranga City Council has a debt level of $391 million.
Mr Crosby's suggestion found favour with Cr Tony Christiansen, Cr Terry Molloy, Cr David Stewart, and Cr Larry Baldock who said giving all the money back was like "robbing Peter to pay Paul because you'll give it back today and you'll take it back tomorrow because we've got still some very big financial mountains coming our way".
When Cr Faulkner's motion was put to the vote, he was supported by Crs Bill Grainger, Catherine Stewart, Wayne Moultrie, Murray Guy and Rick Curach, and the motion was carried. "This is the fair, moral mechanism to use in a system, to quote Mayor Stuart [Crosbie], which is ruthless and draconian taxation and extremely unfair, so it's the fairest method of the unfair mechanisms," Cr Faulkner said.